US Supreme Court Upholds FERC Order 745

Ben Faulkinberry

On Monday, the Supreme Court of the United States ruled the Federal Energy Regulatory Commission (FERC) has authority to regulate demand response (DR) programs in wholesale electricity markets, overturning a contrary ruling by the U.S. Court of Appeals for the District of Columbia. DR programs encourage grid users to turn off machinery or otherwise reduce grid electricity usage during peak load periods, like hot summer days, when grid prices are often at their highest.

Electricity generators had taken the position that FERC, via Order 745, would be overreaching its bounds in regulating wholesale demand response programs, as this would in turn affect retail energy markets. Retail electricity markets are under the sole jurisdiction of individual states and their corresponding Public Utilities Commissions.

FERC Order 745 establishes that participants in DR programs are to be compensated based upon the Locational Marginal Price for the electricity being offset by the program.

This ruling is viewed as regulation which encourages implementation of more demand response programs versus building out additional generation and transmission facilities to meet high demand.

The ruling is bearish news for electricity generators, many of whom saw share prices take a hit after the ruling was made public.